3 Things 11-1
Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it.
Investing In High-Inflation Environments
Jason Zweig of the Wall Street Journal recently shared some insightful observations and advice with those of us concerned about the effects inflation will have on our investments. In commenting on the accuracy of the experts (aka the Wall Street establishment) forecasts regarding inflation, he makes the following observations:
“The more Wall Street agrees that a forecast is inevitable, the more likely the future is to repudiate it.”
“Analysts, economists, and other forecasters are no better at predicting inflation than at predicting anything else: They stink at it. As then-chairman of the Federal Reserve Alan Greenspan noted in 1999, estimates of future inflation—including those by the Fed itself—“have been generally off,” and even changes in inflation that were “doggedly forecast” never occurred.”
(note: in support of his observation that they stink at forecasting, Zweig points to a study done by Federal Reserve Bank of Philadelphia on the low level of accuracy in the last fifty years of inflation forecasting)
Regarding the salience of their advice relative to their forecasts he points out that:
“…the assets often peddled as inflation panaceas don’t have magical powers.”
“Nor are energy stocks or commodities a foolproof tool… Consumer prices rose in 1998, 2001, 2008, 2014, 2015, 2018, and 2020—and yet energy stocks and commodities lost money in all those years, according to Dimensional Fund Advisors, an investment firm in Austin, Texas. In four of those years, both of those purported hedges lost more than 10%.”
So what does he suggest we do with our portfolios when inflation is looming? The same thing that we should do in “normal” times – actually have a diversified portfolio of stocks that is, by design aiming to outpace inflation in terms of its total real return (capital gains plus dividends minus inflation). I should note that for the highly risk-averse among us who are concerned only with the preservation of capital, TIPS (Treasury Inflation Protected Securities) are something he points out as a totally acceptable place to invest. For the rest of us, it’s a range of equities (see the sector chart below). In doing so, we should be prepared to accept short-term volatility on the way to long-term growth.
Thing Two A Crisis That The Public Servants Ignore A client recently shared a story about being turned over to collections because of an unpaid hospital bill that she had been disputing. She described being charged for things she hadn’t been aware of and having no option of refusing them before they were rendered. She lamented, as well all have done at one point or another the fact that she had no control over what she paid to whom. And she also complained about how difficult it was to make sense out of most bills. It turns out that this is all by design. Despite the supposed victory for the little guys that the Affordable Care Act was supposed to have been, as one astute observer pointed out, having insurance is no guarantee of a competitive price. In fact, one patient advocate who worked in hospital billing for decades years before leaving the dark side, said plainly, “that’s the game”, referring to the opacity of the medical billing process. They want you confused, off balance, and unaware. That way it’s easier to get you to comply when they start sending large bills and threaten to sue or initiate other procedures to recover what they claim they are owed. We’re all equally vulnerable to this but the less affluent among us are often hurt the most by it. In one of the biggest go-figure-whys of all time, people who don’t have insurance - typically the poorest and lowest income among us - are charged the highest prices for medical services. To compound that problem, they are then hounded relentlessly for payment. There are stories of people in that situation being so intimidated that they drain their retirement accounts to pay down the inflated medical bills that have been forced upon them. The word crisis gets thrown around often by people who call themselves public servants. But it never gets used in this regard when clearly it is. Wouldn’t it be something if those public servants of ours would work as hard on this crisis, which is clearly man-made, clearly affecting the lives of millions of people now, and clearly fixable, as they do on the one that has much more debatable origins, isn’t wreaking havoc in the present, and has much less clear fixes? Oh, by the way, that client I mentioned in the first paragraph had a fix of her own that might be instructive for the rest of us in the meantime. When the bill collector called, she told him she didn’t have the money and asked if she could pay it off in installments. At that point, the bill collector put on his salesman’s hat and asked her what it would take to get her to settle on that day with a lump sum. When all was said and done, she wrote a check for $540 on a bill that was $1500 when the call began.
Thing Three Just A Thought “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” - Milton Friedman